For a booming economy, the path to higher income, productivity and growth must move workers away from farms to jobs in factories and offices. It is well known that India has had limited success in making such a transition possible. This is the weakest link in our economic story. Some estimates say we need to create 90 million jobs by 2030 to add new people to the workforce, a tall order. New research by economist Amit Basole of Azim Premji University highlights a distinctive feature of this challenge. The proportion of Indians employed in agriculture had been falling for decades, but the process leveled off a few years ago and reversed from the Covid crisis, according to periodic labor force survey data. Given our level of growth, the support of approximately 43% of our workforce is not unexpected. It’s the other missing pieces of the puzzle that stand out. What are the options for workers leaving farms? In the absence of a strong manufacturing sector, the answer is no more productive factory jobs that pay better and foster a good cycle of value creation and demand. Instead, those who move out of farming mostly find themselves in low-paying construction work and informal services. Thus our unilateral structural change is trapping the former agricultural hands in precarious jobs. It also explains why rural households cultivate small plots of land: to supplement the meager income.
Unlike Bangladesh, we do not have an export boom of low-skill, labour-intensive products. India’s economic growth has been largely services-led, with a small pool of skills at the upper end, given a clear failure in mass education, while the need for capital in the manufacturing sector as a whole, despite our labor abundance. intensity has increased. In the 1990s, a leap from the primary to the tertiary sector was welcomed to reap the benefits of globalization. But software, finance, etc., cannot absorb the amount of workers that we need, leading to manual work hordes of uneducated or barely educated people. Broadly speaking, we have seen that the expansion of production has created very few jobs as compared to other countries. Our growth elasticity of employment, a measure of how employment is created by the expansion of output, has been in decline. According to Basole’s paper, it is so weak that a 10% increase in GDP is associated with only a 1% increase in employment. This is the crisis of ‘jobless development’.
The government has made efforts to solve the problem. Its Make in India initiative, for example, has turned into production-linked incentive schemes for manufacturers. Global trade diversification of supply chains away from China has also provided an opportunity for Indian manufacturers to grab a piece of the action. But it is hampered by chronic issues of poor infrastructure, complex and variable regulations, lack of skills, hidden costs and much more. All of this creates a striking picture of contrast—between the job loss battle in the affluent service sectors and the job shortage in the larger economic landscape. Our K-shaped recovery from the COVID pandemic has made inequality worse. Among other consequences of such harsh divisions in a democracy, political processes may fail to convince people of difficult reforms, as seen in repealed agricultural laws and Agneepath protests, if they do not see potential in the private sector. The desperation for government jobs is visible on our streets – a sign of trouble ahead. While development should be our goal, we must correct imbalances before they come into conflict.
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